Mergers & Acquisitions

To many executives, it might seem like a shrewd move in a recession to swoop in and acquire firms on the cheap – buy low, cut costs and defy the usual prediction that most mergers will fail to produce economic value in their first two years. 

There’s a grain of truth to that assumption. But, no matter how compelling the business case, acquisitions inevitably run into difficulties. Key people leave, processes break down, information systems get tangled and customers grouse. Most business leaders are blindsided by these impediments. They’ve focused so hard on nailing down the terms of their deals and hashing out broad integration plans that they’ve given short shrift to spotting specific problems.

The most successful acquirers, however, don’t ignore any of the details. Whether problems are manageable or cataclysmic, these acquirers have strong early-warning systems in place to identify them and they respond to even the faintest distress signals without delay.

What’s more, after a merger, executives normally strive primarily for improving the bottom line through cost reductions, which rarely lasts. Instead they should make it a priority to strengthen sales and marketing in order to sustain profitable revenue growth. That’s because revenue growth is necessary for earnings growth, the most reliable engine for driving total shareholder returns over the long term. The mergers that thrive post-recession will be those that focus not just on the numbers but on growing sales, integrating and motivating employees.